Question

For every 1% increase in unemployment,

there is a corresponding 2% decrease in
potential GDP. This creates a GDP gap. What
is the GDP gap at 1% unemployment?

A. 1%

B. 2%

C. 3%

Answer 1

Answer:
The answer would be C.

Answer 2

It would be C. 3% or -3%

A GDP gap of -2% for every 1% that the unemployment rate exceeds its natural rate. In this case, the GDP gap is (6.0 - 4.5) x -2 = -3%.

It would be 3%.